Currency trading

It has been a month since the normally cautious president of the European Central Bank, Jean-Claude Trichet, pointed out an identifiable slowdown of the rate of decrease in gross domestic product (GNP) and in some instances "already a picking up".

The composite leading indicator of the Organisation for Economic Co-operation and Development is definitely showing a slight upward movement. There is no reason to suppose that all this evidence of 'green shoots' in the world economy has since been reversed.

A consensus is emerging on the nature of John Maynard Keynes' message on curing slumps. This consensus never existed before; the National Institute of Economic Research's publication used to have an introduction stating that the economic process was not completely understood. We are, thanks to the crisis, far closer to understanding it.

The difficulty to understand Keynes has been probably solved by the intellectual polemic between historian Prof. Niall Ferguson of Princeton and economics laureate Paul Krugman of Harvard. Lord Robert Skidelsky, Keynes' most famous biographer, has shown that the Ferguson-Krugman tug-of-war has been largely a draw: the historian and the economist were clashing on the shifting sands of what could be the correct interpretation of the Keynes polymath mind. Keynes was more concerned with the diagnosis of slumps rather than with their cure. The Keynesian theoretical revolution was a psychological one; it was essentially a triumph not of good economic science over bad economic science, but of good judgment over bad.

Which brings me to currency trading, where greed of every sort predominates - especially that of the country behind the traded currency. One must not forget that the issue of a currency involves the right of 'seigniorage' that is, any country can seek to make a profit out of its right to print money. This has been most evident in the case of the US which likes to pay for its oil in ever-depreciating dollars. Russia and China are consequently moving away from the dollar to the euro, which has become (as stated last week in the FT), the world's most successful currency.

Between Lehman's collapse in September to April, it became imperative for currency traders to put their money in the country which, despite a history of currency depreciation, presented a promise of economic strength. In this case, it was momentarily the dollar and the yen. 'Green shoots' are appearing as the world becomes safer for money. There is no new danger of a world financial collapse which central banks averted by Keynesian quantitative easing.

This will initiate however a new upsurge of inflation inevitably putting up the price of gold - an important currency in its own right. In an environment of low inflation, gold increased by 400 per cent over the past three years. It can be expected to rise much higher in the next three years.

The Australian dollar would be an example of a commodity currency, as its value depends much on the export of copper from Australia to China. Commodities are reviving massively, introducing bewilderment into the predictions of those analysts who rely too much on numeracy and less on Keynesian 'good judgment'.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.

johnazzopardivella@hotmail.com